Could this actually cost us millions?

IN his biggest announcement of the campaign so far, Ed Miliband pledged to abolish Britain’s 200-year-old ‘nondom’ tax regime. JAMES SLACK examines a pledge that began to quickly unravel – and could even end up costing the Exchequer millions.

What is a non-dom?

Non-dom status dates back to 1799, when it was introduced by William Pitt the Younger. The original intention was help colonial settlers who wanted to make money in the new territories of the British Empire without having to pay taxes on this income in the UK. Today, non- doms are defined as British residents who pay tax on their UK earnings but whose permanent home is deemed to be outside the UK. There are 116,000 registered with HMRC, ranging from wealthy businessmen such as Chelsea FC owner Roman Abramovich to foreign doctors, nurses and students.

Ed Miliband says they are not required to ‘pay taxes like you and me’. Is this true?

They pay tax on their UK earnings in the same way as everybody else. They must also pay tax on any income or capital gains from overseas if the money is brought into the UK. The benefit of being a non-dom is to avoid being taxed on offshore income which remains outside of the UK.

How much do they pay the Exchequer?

Law firm Pinsent Masons says nondoms paid £6.18billion in income tax in 2012/13, plus significant additional sums in VAT and Capital Gains Tax. They also contributed £223million in the ‘non- dom levy’ – an annual charge by which anyone who has been resident in the UK for seven out of the previous nine years has to pay £30,000 a year to keep their status, rising to £50,000 for those living here for 12 out of 14 years. The total tax take from non- doms has been estimated at £8.2billion – more than three times the £2.3billion from the 25 per cent lowest income taxpayers (more than 7million people).

Is Labour going to abolish non-dom status altogether?

No. That was the spin put on yesterday’s announcement, but the small print shows there will be exceptions. People will be exempt from the new rules for anything between the first three and five years they are in Britain. Labour says this is because it does not want to deter the likes of foreign doctors from coming temporarily.

How big an exemption is this?

The Tories say it is huge. HM Treasury figures show that more than 60 per cent of non- doms are here for five years or less so would potentially be unaffected. Amid confusion in the Labour ranks, some aides admitted the new policy was more of a tightening of the rules on non-doms than an abolition of the status altogether.

Will it raise any money for the Exchequer?

The key question. Ed Balls yesterday quoted a supposedly independent expert saying it would raise ‘hundreds of millions of pounds’. However, a tape soon emerged suggesting this statement contradicted a quote from the Shadow Chancellor as recently as January. Balls told BBC Leeds: ‘If you abolish the whole status, then probably it ends up costing Britain money because some people will then leave the country.’

Who is Labour’s tax expert on this issue?

Jolyon Maugham, a Labour Party member in Bermondsey and Old Southwark. He soon found himself under fire from other tax advisers who pointed out most countries have double taxation treaties, which means that, if you pay tax in one country on your earnings, you can’t be taxed again in another jurisdiction. The UK has signed more than 100 such treaties – potentially limiting the sums Labour can rake in from non-doms. Mr Maugham later conceded: ‘There’s plainly some uncertainty about the numbers.’

So are Miliband’s motives more political than financial?

Labour thinks the policy will be well received in the aftermath of the financial crash. The Tories – perhaps recognising Miliband’s crackdown might be electorally popular – did not condemn it outright, instead focusing on the chaos in the Labour ranks over detail.

And the biggest dangers?

That – as Ed Balls conceded in January – the wealth creators opt to leave the country, taking their taxes, investment and jobs elsewhere. To introduce a policy which will reduce the tax take, at a time when the annual deficit is £86billion, would be irresponsible in the extreme.

Did the Coalition simply ignore the issue?

No. George Osborne made a series of increases to the non-dom levy, which raised £226million in 2012/13, up from £157million under Labour. In last month’s Budget, a new annual charge of £90,000 was introduced for individuals who have been resident in the UK for at least 17 of the last 20 years.